The Monetary Policy Committee (MPC) of the Central Bank of Nigeria (CBN) kept its benchmark interest rate, Monetary Policy Rate (MPR) at 14 per cent and also maintained existing Cash Reserve Ratios (CRR) for commercial banks at 22.5 per cent.
The CBN Governor, Godwin Emefiele told reporters on Tuesday in Abuja the outcome of the two-day meeting, sayig: “While challenges in the economy remain, monetary policy alone can’t boost growth. Cutting interest rates is not advisable and the current stance will help to limit inflation.
Before the announcement of the outcome of the MPC meeting, analysts at FSDH Merchant Bank Limited said in an e-mailed note to clients, “Given the stagflation the country faces at the moment, maintaining rates at the current level may be the best option”.
The Monetary Policy Rate (MPR) was increased by 200 basis points to 14 per cent in July to attract foreign capital and help prop up the naira. The currency is about 30 percent more expensive on the black market than the official exchange rate.
The International Monetary Fund forecast the economy will shrink by 1.8 percent this year, the first full-year contraction since 1991. Power shortages, a decline in oil prices and output and the delayed passage of a 6.1 trillion-naira ($19.3 billion) budget planned to stimulate economic activity have weighed on output.
According to National Bureau of Statistics (NBS), the country inflation accelerated to 17.6 percent in August, the highest rate since October 2005, as the naira’s almost 40 percent drop against the dollar since the removal of a currency peg on June 20 made imports from food to industrial inputs more expensive.
The peg caused foreign-currency shortages which contributed to the country’s economy contracting by 2.1 percent in the second quarter from a year earlier after shrinking 0.4 percent in the three months through March. The country is still not free from the effect of the peg, three months after its removal.
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